Being the fall guy: Is liability for loss a sales aid?

Is shouldering some of the liability for loss when giving advice really something to tell clients?

A little under a month ago, Stephen Gay, director-general of the Association of Independent Financial Advisers (AIFA), told a room of practitioners they should tell clients that buying their services allows them to transfer some liability for financial transactions.

It could be a selling point for fee-based advice after the Retail Distribution Review (RDR), he said.

“People do not understand that, when they buy advice, part of what they pay for is a transfer of the liability from their shoulders to the shoulders of professionals. There is redress there, and IFAs should push that a little more.”

The death of caveat emptor

Bill Crowley, IFA at Castlegate Investments, said there was no need for advisers to push the liability angle on clients, because they are already aware of their compensation rights.

“Clients know there is a whole heap of liability piled onto the adviser the moment the business card is handed over,” he said.

Crowley gave an example of a recent client who had taken out critical illness cover without fully divulging his health issues. The client later complained to the insurers and advisers, arguing the policy was not fit.

Crowley claimed this showed the customer automatically assumed someone else was to blame. 

“We believe that what Stephen Gay says is correct, but if a client accepts you purely because he wants you to take the rap if it goes wrong, then that client may be more likely to complain even if it does not go wrong,” he added.

Keeping it quiet

Other advisers say selling their proposition on liability, at least partly, is not something they tend to do.

Sam Caunt, company secretary at Kingston IFA, said: “Acting as an agent on behalf of the client we have to put ourselves in their shoes and think and act as they would. That means taking the rap when it goes wrong. However, generally speaking we do not find ourselves saying this to our clients.”

Professional indemnity

Selling services on the grounds of liability could have complicated insurance ramifications for IFAs, according to Yvonne Goodwin, director of Yvonne Goodwin Wealth Management.

“This is a very negative stance and I do not think our professional indemnity (PI) provider would be very happy with it,” she said.

“The reality is clients are covered, but I do not think it is palatable to sell ourselves on that basis as we have many other uses.”

20:20 Hindsight

Crowley said retrospective decisions about the quality of advice given to the client in the event of a complaint can be a tripping point in the liability game.

“When something is judged in hindsight it can often be found to be less than perfect,” he said.

Caunt added: “We [advisers] are not perfect and should not promise something which we cannot deliver in each and every case.”

Meet the man who does…

Ian Wishart, director of Wishart Wealth, said though it is not central to his proposition, he can and does use responsibility as a selling point.

“Lifestyle financial planners who have done a lifetime cashflow modeling for their clients should be able to say ‘we will take responsibility for your financial future’,” said Wishart. “IFAs who just set up a few ISAs cannot make that promise.”